BIZCHINA> RMB Revaluation
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BIZCHINA> RMB Revaluation
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China rate hike not likely until Q2 2007
(Reuters)
Updated: 2006-10-13 15:35 China will probably keep a tight grip on its currency over the next year, while uncertainty about the pace of economic growth will push back the next rate rise until the second quarter, a Reuters poll shows.
A survey this week of 25 analysts in China, Europe, the U.S. and Australia showed a sharp change in opinion from the last poll in August after a surprise hike on August 18. Then, many economists had predicted another interest rate rise by end-2006. But economists are now less convinced that there will soon be further tightening given concerns about a U.S. economic slowdown, possible knock-on effects to Chinese growth and uncertainty about how well measures already taken to cool the economy are working. The survey also showed the yuan, or renminbi, appreciating gently to 7.8 to the dollar by the end of the year, 7.73 in six months' time and about 4.5 percent higher at 7.56 in a year's time from a close of 7.9148 on Thursday. That is little changed from the last survey. Forecasters now predict the People's Bank of China (PBOC) will raise its benchmark deposit and lending rate by 27 basis points in the second quarter next year to 2.79 and 6.39 percent respectively. "They will wait until next year to see how the investment slowdown pans out in the economy in the second half and if we start to see a spillover into other areas via labour market effects," said Glenn Maguire at Societe Generale in Hong Kong. But economists had mixed views on how many rate hikes are on the agenda, whether both lending and deposit rates will rise simultaneously and whether the government will use other measures to cool rapid expansion which hit more than 10 percent in 2005. A majority -- 15 of 23 economists, or 65 percent -- predicted no change in the lending rate this year. That is down from 9 of 18 in August's poll. There was a bigger shift in consensus for the deposit rate with 13 of 17 economists, or almost 80 percent, predicting it to stay at 2.52 percent this year, from 10 out of 17 in the last poll. "There is pressure for them to cool the economy down given the strength of demand so the sooner they do it the better," said Nigel Rendall at Calyon in London. He expects a 27 basis point lending rate hike either this month or next. Holding the reins Others ruled out any more interest rate hikes, instead favouring other measures. "As for interest rates, there's not much of a chance that they will go up in the fourth quarter of this year. As the government imposes further controls on land approval, interest rate increases will wait," Chen Jijun, analyst at Citic Securities in Beijing. (For more biz stories, please visit Industries)
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